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Have We had the Last Interest Rate Hike?

Over the last year, the Federal Reserve increased interest rates in the U.S., the S&P 500 is down about 12%, and the DOW is down about 20%. The Fed does not have a meeting scheduled for October, but the September meeting minutes will be released on October 14 and the minutes might shed light on their thoughts for the future. The Fed currently has two more meetings in 2022 scheduled (November 2 and December 14), which is when they typically make rate announcements. Most of the market is expecting a rate increase at both meetings, but we’ll see what happens. I read a recent article from Charles Schwab that had some optimistic viewpoints that rates might be at their peak and could drop over 2023. Here is my summary of the key takeaways:

Just like the Fed, other central banks around the world have implemented rate hikes as a response to the economic impacts of the pandemic. Just like the U.S. stock market, most international markets have seen drops and bear markets over the last year. It’s very similar to global banking actions taken back in 2008. Last year, the Central Bank of Brazil and the Czech National Bank were the earliest implementors of rate hikes. Currently, both banks seem to be easing off their positions to continue rate hikes. The Czech National Bank held rates with no increase at their August 2022 meeting. The Central Bank of Brazil announced at their September 2022 meeting they will hold rates as is with no increase, which was welcome news after their previous 12 straight increases. The image below represents hikes versus cuts for 115 central banks over the last 20 years.

The market expects the U.S. Fed and European Central Bank to possibly follow suit and ease off rate hikes in the first half of 2023. Typically, after a period of continuous hikes, there tends to be a gradual decline. The image below shows how rates have typically dropped after periods of hikes over the last 50 years for the U.S. Fed, European Central Bank (ECB), and Bank of England (UK Bank).